APICS News

Delayed Payments Squeeze Suppliers

By | 0 | 0 | June 04, 2013

Some large consumer products companies are turning to a strategy that involves delaying payments to commodity suppliers by up to six months, the Financial Times reports. Advertising agencies also are getting caught up in the delays. This has the effect of squeezing cash flows and constraining critical points in upstream supply chains.

“In order to remain competitive, reflect current industry standards, and drive world-class growth, we need to change payment terms,” reads a statement issued by Mondelez, a company recently formed out of Kraft’s snack foods brands. The company regards this as a way to better align with the industry and boost competitiveness while improving transparency and predictability of payment processes.

Low interest rates and healthy balance sheets are two realities enabling companies to delay payments, says Gary Karp of food industry consultancy Technomic, who adds, “At some point, there will be some bottom-line implications relative to which [suppliers] can stay in business and which will be put out of business ... This seems like an exercise of power because they have it.”

Removing Counterfeit Electronics from Military Supply Chain

The US government is proposing a rule that would require military contractors to take specific steps to avoid the use of counterfeit electronics, the Washington Post reports. Recommendations include training employees to recognize fakes, increased testing, using trusted suppliers, and setting aside suspect parts. Under the proposed guidelines, contractors would be responsible for replacing parts discovered to be fake.

The proposal comes at a time of increased scrutiny for government contracts. The defense supply chain was described in a Senate Armed Services Committee report as relying upon “hundreds of unvetted, independent distributors to supply electronic parts for some of our most sensitive defense systems.” An investigation uncovered about 1,800 cases of suspected counterfeit electronics, more than 70 percent of which were found to originate in China. Government representatives say these counterfeits endanger armed forces in the field.

Advocates for the electronics industry are criticizing the proposed changes. “The government is washing its hands of its responsibility,” says Alan Chvotkin, executive vice president at the Professional Services Council. “It’s going to add significant costs for a lot of companies.”

Copper Industry Suffers Rising Delivery Fees

Commodity-trading firms are charging unusually high delivery fees to get copper out of their warehouses, and suppliers are passing on the costs along the supply chain, the Wall Street Journal reports. The rising cost of procuring metal is worrisome to many manufacturers. Copper prices are up 40 percent in the United States in the past two months alone, to a record high since benchmarking firm Platts began to track them in 1979.

The delivery fees are occurring alongside unusually high copper inventories. According to the London Metal Exchange, copper stored in its warehouses is up 92 percent this year. The Journal reports this metal is largely owned by two trading companies, which are incentivized to keep warehouses full in order to collect rent from customers for the storage, even as the inventory presents logistical problems for getting out the metal.

Recent supply disruptions also are increasing demand on warehoused metal, further contributing to higher delivery fees. This year, a landslide at a mine in Utah and an accident at a mine in Indonesia have led to a 125,000-ton decline in global copper output.

The warehouse system is mostly self-regulated. “Anyone who wants to get metal has to pay more than the warehouse,” says Ryan Belshaw, metals analyst with Macquarie Group. “The warehouses are absorbing anything they can.”

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